Tuesday, September 25, 2007

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Smokers may pursue a suit alleging that tobacco company Philip Morris made fraudulent misrepresentations in violation of the Maine Unfair Trade Practices Act by advertising and promoting Marlboro and Cambridge Lights as “light” and as having “Lowered Tar and Nicotine,” the U.S. Court of Appeals in Boston has ruled.

Philip Morris unsuccessfully contended that the smokers’ claims were expressly preempted by federal law, impliedly preempted by FTC regulation, and exempted from the prohibitions of the Maine statute.

Express Preemption

The U.S. Supreme Court, in Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992), held that some—but not all—actions for damages under state law are expressly preempted by the Federal Cigarette Labeling and Advertising Act (FCLAA).

The Maine Unfair Trade Practices Act outlawed unfair or deceptive acts or practices in the conduct of any trade or commerce. The substance of the smokers’ claim was that Philip Morris had falsely represented some of its brands as “light” or having “lower tar and nicotine,” although they delivered the same quantities of these ingredients to a smoker as did “full-flavored” cigarettes.

The state law “duty not to deceive” was a general obligation falling within Cipollone’s holding that claims based on allegedly false statements of material fact made in advertisements survive FCLAA preemption, according to the court. Contrary to Philip Morris’s argument, the smokers’ claims were not failure-to-warn or warning neutralization claims subject to preemption.

The smokers’ theory was not that the advertising should have included warnings, in addition to those mandated by he FCLAA, or that the statements “light” and “lower tar and nicotine” diluted the warnings on Philip Morris’s packaging or advertising so as to make its cigarettes unreasonably dangerous or otherwise defective.

Rather, the smokers’ claims were premised on longstanding rules governing fraud, which themselves arose not from any duty based on smoking and health, but on the duty not to deceive. So, as held in Cipollone, neither the text of the FCLAA’s statement of purpose nor the preemption provision itself fairly evinced the intent to displace all potentially inconsistent state cigarette advertising regulations, only regulations that were “based on smoking and health,” the court reasoned.

Implied Preemption

Philip Morris argued that the smokers’ claims were impliedly preempted by the FTC’s oversight of cigarette advertising under the Federal Trade Commission Act. The question, as framed by the court under the established rules of conflict preemption, was whether the FTC’s oversight of tar and nicotine claims manifested a federal policy intended to displace conflicting state law.

Philip Morris contended that the smokers’ state law claims stood as an obstacle to the FTC’s policy, expressed in a 1971 consent order, of allowing advertising of tar and nicotine claims as long as they were substantiated with numerical results derived through testing according to the Cambridge Filter Method and the results were published in all brand advertisements.

However, since its 1969 agreement with the tobacco companies, the FTC had never issued a formal rule specifically defining which cigarette advertising practices violated the FTC Act and which did not, the court noted.

Section 57b(e) of the FTC Act specifically provided that state law rights of action survived the FTC’s efforts at judicial enforcement of its own federal standards: in other words, that those efforts are in addition to, and not in lieu of other available remedies. There appeared to be no purpose for the provision other than to allow further relief from unfair or deceptive acts or practices under state law even after the Commission had already challenged them through litigation under the FTC Act.

The FTC could not preempt state law actions arising out of particular practices simply by entering into a consent order allowing them to continue, the court determined.

Regulated Conduct Exemption

Finally, the smokers’ claims were not barred by the Maine Unfair Trade Practices Act’s exemption for actions otherwise permitted under laws as administered by any regulatory board or officer acting under the statutory authority of the United States. This argument, like Philip Morris’s implied preemption theory, depended largely on its characterization of FTC policy as allowing the use of the terms “light” and “lower tar and nicotine” when supported by testing under the Cambridge Filter Method.